I’m still learning about buying a home in California. Home buying is complicated, especially in this state’s market. It’s not exactly easy figuring out how to get started, how much you can afford, and what “amortization” means without talking to a lot of people. After talking to a licensed lender, I feel like I gained a heck of a lot of knowledge but also confused myself even further. This past pandemic year was not a normal year for anyone, financially speaking and who know what this year will bring. Many homes in Los Angeles and surrounding areas are up for sale, as homeowners are exiting at fast rates. As mentioned in a prior blog, homes in other states definitely give you more bang for your buck. The size of a home in Texas is a fourth the price of what it would be in California, but with much larger land and square footage, so that has become increasingly attractive.
If you are serious and are planning to take out a mortgage to pay for your future home, you need to understand how your personal financial situation impacts your buying options. Your financial health is your buying power.
Right now in CA, the mortgage rates are low. They average 2.34% for a 15-year mortgage and 2.88% for a 30-year mortgage. The buyer demand currently exceeds how many homes are listed right now, so it is a seller’s market. Most homes leave the market soon after they are listed, no matter what condition they are in because property values are rising: Over the next year, homes in California will appreciate by 8.4%.
So to get going…Brush up on your financial requirements to buy a home.
Beef up that Credit score: Low-credit loans exist, but a score of at least 620 is needed for most conventional loans. If your credit score is lower than 620, do everything you can to raise your credit score at this very moment. Next…Look at your debt-to-income ratio. Most of my research says tht you should spend less than 36% of your income on debt (including your future mortgage payment) every month. If you are not there, you are probaby not in the market, yet. For a conventional loan, you’ll need a down payment of at least 20%. That one is easy for most to figure out. What people don’t look into enough is closing costs. Typically, home buyers pay 2-5% of the home’s price in closing costs and I have seen many friends not factor that in. On the lowest end of the market, the average home value in California is roughly $599,159, which amounts to $11,983-29,958. The part where this gets tricky for most is that these costs usually have to be paid out of pocket. You should be absolutely sure that you have the money savings to cover it. Lastly, homeownership costs come into play. In California, maintenance costs are roughly $2,802 annually, but this varies based on the house and location. Therefore, saving1% of the house’s value each year for repairs is recommended.
When you decide on the neighborhood that is attractive enough for you to consider buying a home, you should utilize the historical trends in property appreciation that can show you if buying in the area will pay off in the future. Many neighborhoods in Los Angeles have changed over the past 10 years. This can impact your general lifestyle, your daily commute towork or schools and where you go out to dinner. It’s important that you build a relationship with a great real estate agent who not only knows your desires but also your limitations. You don’t want to get into more house than you can really afford, just because someone wants to make a sale. Do as much research on your agent as you do on the homes you are interested in.
There are many sites with mortgage calculators that can be helpful in planning if you feel that you are not ready to talk to someone yet, while you figure out your financial picture.
Mortgage Calculator, zillow.com, Bloomberg.com, MoneyUnder30.com, wsj.com all have clear cut info on mortgages These sites prep you with the questions I have discussed above.
First, get your finances in order. Then, start shopping and decide what neighborhood is desired and matches your work/life balance and investment for the future. Create a relationship with a vetted real estate agent who understands your price range and needs, as well as legitimately knows the neighborhood you want to purchase in. It is important that they can easily walk you through the home buying process. Once that is all set, you will need to get pre-approved as most sellers will not consider you as viable or serious until that happens. Finding a lender with the most competative interest rates and solid terms is important to having a deal actually close. Compare all of your options while house hunting before making a serious offer that benefits both you and the seller. Research what it means to have an inspection and appraisal done and be prepared for unseen problems that ay arise. Once that clears, and you are ready to do a final walkthrough and close, you should do many last looks because after that the house will be yours!
Once you assess where you are financially, you can make plans, such as the above, and don’t beat yourself up, if you need more time to be an attractive home buyer. If nothing else, it will manadate specific goals you need to reach and give you something to look forward to. And in time, your tastes, financial pictures and needs may change.
Some of those calculator sites, mentioned above, are literally a one stop shop for all your mortgage questions and they also teach you what to do to start planning, if you are not at a position where you are ready to buy a home.